Articles in Category: Ferrous Metals

Life is full of ups and downs.

So, too, is the world of metals.

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Last month, all 10 of our MMIs saw upward movement. This month? Not so much.

Eight of 10 MMIs tracked back this month, albeit several of them fell by small amounts. The GOES MMI, meanwhile, picked up a point, while the Aluminum MMI posted no movement.

If you’ll remember, copper and aluminum had big months in August, as we detailed in last month’s MMI report. After a cooling period last month, though, so far in October copper has tracked back upward — so maybe it was just a September slump for the good Dr. Copper.

“However, market watchers can see a new rally taking place within the base metals industry,” wrote our Irene Martinez Canorea in her Copper MMI report. “Copper prices — along with lead and tin — increased sharply on heavy trading volumes. Buying organizations can expect upward movements within the bullish market.”

Meanwhile, as for aluminum, the flat month is actually an encouraging sign for the metal’s strength.

“Aluminum traded sideways in September,” Martinez Canorea wrote. “This trading pattern suggests resilience, as aluminum prices digest price gains and become strong again to continue the uptrend. Trading volumes continue to support the current rally, driving aluminum prices to a five-year-high in September.”

The aforementioned represents a small snippet of the analysis available in this month’s report.

You can read about all of the aforementioned — and much more — by downloading the October MMI report below.

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This morning in metals news, steel production through Oct. 7 is up for the year, the Kobe Steel scandal continues and India’s steel capacity could more than double by 2030.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

U.S. Steel Production Outpaces 2016 Levels

According to data from the American Iron and Steel Institute (AISI), U.S. steel production through Oct. 7, amounting to 69,545,000 net tons, is up 3.7% compared with the same time frame last year.

Production in the week ending Oct. 7 amounted to 1,741,000 net tons, up 5.2% from the same period in 2016 and up 2.1% from the week ending Sept. 30.

Kobe Steel in Hot Water

Kobe Steel’s troubles could be extending beyond aluminum and copper.

The data falsification scandal is now touching iron powder products, according to the Nikkei Asian Review.

Earlier this week, Kobe Steel admitted it altered inspection certificates to falsely show that certain aluminum and copper components had satisfied client specifications for strength, the Review reported.

India Steel Capacity Rising

According to the Economic Times, India’s steel capacity will more than double by the end of 2030.

Free Sample Report: Our Annual Metal Buying Outlook

Steel Secretary Aruna Sharma said capacity, currently at 126 million tons, is expected to hit 150 million tons by 2021 and 300 million tons by 2030.

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Steel prices in China have been rising, but iron ore prices have been falling — what’s going on there?

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China is shutting domestic iron ore mines at an accelerating rate, forcing steel companies to import iron ore from overseas, which would normally be supportive for the iron ore price.

The answer it would seem, as is so often the case, has more to do with speculators’ view of future fundamentals than actual current fundamentals.

Strong Chinese Demand for Steel

Steel prices in China are strong because steel demand remains robust, despite exports being crimped by protectionist measures in North America, Europe, India and elsewhere. Domestic demand is holding up well.

Meanwhile, supply-side action by Beijing is cutting swathes of steelmaking capacity. Initially, much of the cuts came to “illegal” production, such as EDF scrap based long products mills — which has happened largely under the radar — but also older, less efficient and more polluting steel plants. All of this follows Beijing’s pledge to cut 50 million tons this year as part of an environmental drive to reduce air pollution by November (the start of the winter heating season).

Source Financial Times

After strong price rises this year, investors have done well and are now taking their profits ahead of a perceived fall in demand, as steel curtailments really begin to bite later in the year. It would be a brave speculator who bet against the wave of negative sentiment toward the iron ore price, including even the Australian government, which has been warning of price falls.

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It would be an exaggeration to say steel producers have never had it so good, but on the whole, conditions have been supportive of the sector this year — both globally and in top producer China.

What’s Up, Beijing?

Beijing’s supply side reforms, cutting out older, less efficient steel plants largely on environmental grounds has directly supported the larger state steel sector. Much of the “illegal” and less well-regulated (therefore more polluting) producers are concentrated in the smaller end of the private sector. These have been the first to suffer enforced closure as Beijing pushes through its aim of closing some 50 million tons of capacity this year.

A widespread clampdown on the scrap-based EAF producers (virtually all of whom are in the private sector, and deemed illegal because they often do not have licenses and more polluting because they are based on scrap)  has constrained supply and given rebar prices a drug-induced high.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

The move underpins Beijing’s rationale to achieve as many wins as possible, reduce capacity to avoid anti-dumping moves by trading partners, improve environmental conditions (specifically particulate emissions, which cause smog), and consolidate a highly fragmented domestic steel industry all while simultaneously minimizing job losses and supporting the state sector at the expense of the private sector.

Bingo — they have it all!

Tale of the Tape

So far, you should say, Beijing is doing very well. Capacity has closed, particularly older and therefore likely less efficient capacity; steel production is actually up 4% year-on-year, and prices have risen robustly.

The state sector is doing very well, enjoying high prices, strong demand with the removal of their smaller competitors and, following an 18% fall in iron ore prices over the last month, look set to make even better profits in the last quarter. Iron ore import volumes have also fallen of late, as the graph below from the FT shows, but that may partly be due to large inventories that had built up as the price rose.

Source: Financial Times

Steel prices in China as tracked by MetalMiner’s IndX have weakened this month, but with the fall in raw material costs Chinese producers’ margins have held up well.

Free Download: MetalMiner’s September 2017 MMI Report

In the rest of the world, China’s reduced exports, down 26% year-to-date due to anti-dumping barriers and improved domestic demand, have created some respite for foreign steel mills, particularly Russian, Turkish, Ukrainian and Canadian suppliers that have stepped in to take China’s place as low-cost supplier to the U.S. and European markets.

Producers in Europe are still complaining bitterly about competition, but as with the U.S., realistically it is less about China and more about low-price suppliers in Russia, Ukraine and elsewhere.

Outlook

On the back of rising global steel demand and soft input costs, steel producers’ margins should be supported even in Western markets and prices remain firm next year — even if China’s demand grows only slowly.

assetseller/Adobe Stock

This morning in metals news, the International Trade Commission rules that imports of solar cells are hurting U.S. manufacturers, iron ore enters a bear market and the UN proposes that businesses take responsibility for environmental pollution.

A Bear Market for Iron Ore

The price of iron ore has undergone the biggest weekly fall in 16 months, Bloomberg reports. Having slipped into a bear market, the metal was trading at $63.56/ton on Friday, more than 20% lower than its August 21 high of $79.93/ton.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

We may see this price slump to continue for the near future. Some expect the price of iron ore to drop to the $50s in the fourth quarter. If China’s steel production cuts do go into effect as planned this winter, the country’s steel output may decrease as much as 30 million tons, thus cutting iron consumption by 50 million tons.

End of the U.S. Solar Boom?

The U.S. International Trade Commission voted in a 4-0 decision on Friday that the U.S. solar energy industry is being hurt by foreign overcapacity and cheap solar cell imports, the Washington Post reports. However, the proposed 40-cent-per-watt tariff on solar cells would double the price of solar panels, putting pressure on the rest of the U.S. solar industry.
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Thyssenkrupp and Tata Steel have finally made it to the altar.

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After 18 months of mostly behind-the-scenes negotiations to resolve several potentially “deal-off” stumbling blocks, all the major issues have been resolved. The two firms have signed a memorandum of understanding to create a 50:50 joint venture based in Amsterdam, Netherlands, called Thyssenkrupp Tata Steel (TTS).

The behemoth will rank second to ArcelorMittal with 21 million tons of annual steel capacity generating sales of €15 billion ($17.8 billion) and employing 48,000 people, The Telegraph reported.

New Focus

TTS will focus on three main production hubs: Ijmuiden in the Netherlands, Duisburg in Germany and Port Talbot in South Wales, the paper reports, Analysts say improved viability will come from cost savings of between €400 million and €600 million a year arising after 2,000 redundancies and another 2,000 jobs going out of the combined business as overlapping operations are removed.

Not surprisingly, TTS sees the value proposition as the enhanced opportunity for the combined group to move its business up the value chain in cooperation rather than competition with each other.

Hans Fischer, Tata Steel Europe’s chief executive, said “We need to focus on higher value products, China has huge overcapacity and there is a risk they will flood the market. The answer is not to compete with them, but try but find a solution where we have products that cannot be produced easily. We need to be a technology leader.”

Tata wriggling out of the old British Steel Pension fund liabilities was the final major hurdle to overcome — albeit to be fair, at considerable cost to the parent — and the willingness of British workers to agree to an end to the final salary scheme and reduced benefits for existing members underlines their desperation for a deal, matched by compromises made in Germany by workers fearful of the prospects of foreign competition with the European steel industry.

But therein lies the dilemma.

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Unlike the steel mergers of the mid-noughties, the mergers currently in the news are born out of weakness, not strength, a recent Financial Times article suggests.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

According to the piece, profitability among the continent’s steelmakers plunged from a peak in the third quarter of 2008 — when each ton shipped delivered on average €215 in earnings before interest, tax, depreciation and amortization — to just €46/tonne in the first quarter of 2016, according to calculations by UBS.

The figure has recovered since to about €83/tonne in the first quarter of 2017, but at the cost of 86,000 job losses since the financial crisis and years of losses contributing to the bankruptcy of the continent’s largest steel production plant, Ilva, in Italy.

Source Financial Times

Despite years of suboptimal capacity utilization, there has been limited rationalization of production continentwide, with governments fiercly opposing job losses in their backyard and steelmakers hoping the other guy will make the cuts. Even Ilva is now being taken over by ArcelorMittal rather than closing completely, and following a major investment will be back in production next year.

Source Financial Times

Although the industry acknowledges Europe will never need as much steel as it once did, ArcelorMittal is quoted as saying the industry is looking to governments to do more to stem imports from Russia and China, and facilitate the planned and phased closure of persistently loss-making plants. Less foreign competition and more consolidation is the agenda in the hope fewer more-consolidated steelmakers can achieve greater clout with buyers in a more constrained market, forcing through higher prices.

Source Financial Times

When ArcelorMittal’s takeover of Ilva is complete, the combined entity will control some 30% of European flat-rolled steel production, up from 26.5% for ArcelorMittal now. While Tata Steel’s proposed and much-delayed merger with ThyssenKrupp’s steel division — currently Europe’s second-largest steel producer — would raise their combined market share for hot-rolled flat products to over 20%.

Steel prices are already up nearly 60% from the bottom in 2015 on the back of improved recovery in steel demand and a gradual increase in anti-dumping legislation restricting some types of steel imports into Europe. Producers would like to see this go a lot further, of course, but consumers are fighting to keep the import market open, fearing — with some justification — that more action will reduce competition and result in significantly higher prices.

Free Download: The July 2017 MMI Report

For the first time in years, steelmakers at least seem to have a plan and are actively pursuing it. Whether that plan is to the eventual benefit or detriment of consumers remains to be seen — but a healthier domestic steel industry must certainly be advantageous to all.

Our July MMI report is in the books, and it paints a more positive picture than our June report.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

Last month, four sub-indexes posted no movement. This month? Just one.

On top of that, the number of sub-indexes posting upward movement increased from four to six.

It was an especially good month for the Raw Steels MMI, which shot up 4.4%.

The Stainless Steel MMI — stainless is also part of the Section 232 investigation – also rose, while the other 232 investigation subject, aluminum, fell by a point.

The Department of Commerce is expected to announce the results of the Section 232 steel investigation in the near term. Will the Trump administration opt for tariffs, quotas, or a combination of the two, to combat excess capacity from China? Will China make good on talk of cutting production, particularly in light of what was a record June for Chinese steel and aluminum production?

Once the first 232 domino drops, the metal markets will feel the ripple effects — it’s only a matter of when.

Free Sample Report: Our Annual Metal Buying Outlook

You can read about all of the above and much more in our July MMI report, which you can download below.

Iakov Kalinin/Adobe Stock

Defining the root cause of Britain’s predicament is not as simple as a sweeping “foreign competition” argument. But there’s no doubt that is part of the problem, as Britain’s steel industry has been decimated over the last 25 years.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

A House of Commons report last year said output from the UK steel industry was £2.2 billion in 1990, compared to £1.6 billion in 2015, a 30% fall (in 2013 prices).

Source: House of Commons Library Briefing Paper No. 07317, Oct. 28, 2016

The decline has left the U.K. producing just 11 million tons of steel, compared to 166 million tons for the EU as a whole and 804 million tons from China. A combination of global excess supply and lackluster government support has left the U.K. as the fifth-largest steel producer in the EU, after Germany, Italy, France and Spain.

In line with most European producers, surviving U.K. steelmakers have had to move up the value chain in order to remain profitable. Inevitably, however, the market for more value add, niche product areas is smaller than the bulk commodities end of the market.

The U.K., in turn, is a relatively small consumer of steel products, as medium to heavier industry has also declined over the years. As a result, the U.K. has lost the ability to make some of the grades or forms necessary for more demanding or critical applications.

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